Will Rising Oil Prices Dull Demand for Digital Transformation in the Oilfield?

Over the last several years, an especially during the last three of this “lower for longer” market, ARC has been shouting from the rooftops that oil & gas owner-operators, independent E&P firms, and all other stakeholders that comprise the oil & gas value chain must embrace technologies that enable digital transformation in the oilfield to survive, operate and thrive. 

When oil prices plunged from around $100 per barrel in June 2014 down to the $30s and $50s range (until 2018 when it hit $60) companies were faced with the prospect of having to invest what little discretionary funds they possessed into technologies that would help them lower the cost per boe, maintain or even increase drilling and production performance, and accomplish all of this on a shoestring - with fewer resources than seen in years due to both layoffs and the impact of the “Great Crew Change”.  Otherwise, many companies that did not see the value of IIoT-enabled solutions and were unable to reduce costs commensurately were forced to go bankrupt or being acquired by a stronger competitor.

Digital transformation in the oilfield will be price inelastic – It is Here to Stay!

ARC’s discussions with many oil & gas players indicated that as long as oil prices were trading above $50 per barrel, many onshore unconventional and conventional wells, and even some shallow water offshore ones, could continue to operate, and most companies could still make a return on investment.  As oil prices started to creep above $60 per barrel there was some early discussions on what the potential impact would be if oil prices ever climbed back above $70 per barrel – would operators and independents still continue on their journey towards digital transformation or would they revert back to the old insanity of “doing the same thing over and over again, expecting different results”.  The general consensus was that oil & gas companies learned a deep and painful lesson that they can no longer continue to operate as they did in the past - being a laggard in deploying new technologies – and must continue to operate on the belief that oil prices will be trading in the $40s-$50s per barrel range even if oil prices are trading in the $60s or $70s (or more) per barrel. 

The increasing reliance of renewable energy and the growing adoption of vehicles not reliant on gasoline or diesel will continue to place pressure on oil & gas companies to find, extract, produce and refine hydrocarbons as cost effectively and efficiently as possible.  ARC believes that the only oil & gas companies, many of which are increasingly morphing into energy companies, that will survive in the future are those that fully embrace a digital transformation such that it becomes part of their DNA.